LONDON: Oil reversed early losses on Tuesday to rise above $75 a barrel as optimism about the economic recovery offset a report predicting oil demand growth will slow next year, leaving the market well supplied.
The International Energy Agency (IEA) said global oil demand growth is expected to be more than 400,000 barrels per day (bpd) lower in 2011 than last year at 1.35 million bpd.
"The key element is the gradual scaling back of economic stimulus programs which we are assuming takes place over the next 12-15 months," David Fyfe, head of the IEA’s Oil Industry and Markets Division, told Reuters Insider TV.
"That’s taking a little of the post-recessionary froth out of the market."
Demand for crude from the Organization of the Petroleum Exporting Countries is expected to rise by just 400,000 bpd next year to 29.2 million bpd, the IEA said, leaving the producer group pumping well below capacity.
"In short, markets in 2011 may prove ‘not too hot, not too cold,’" the IEA said in its first demand projection for next year.
For 2010, the agency, which advises 28 industrialized countries, raised its forecast by 80,000 bpd to 1.77 million bpd.
At 0942 GMT, US crude for August delivery was up 36 cents at $75.31 a barrel, having touched an earlier low of $74.25. Prices have fallen from a 19-month peak above $87 a barrel in early May as concerns about the pace of economic recovery have risen.
Brent crude oil for August delivery was up 58 cents at $74.95 a barrel.
Rising European equity markets supported prices, with many traders focused on companies’ financial results as they try to gauge the strength of the recovery and its eventual impact on oil demand.
Alcoa, the largest US producer of aluminum — one of the most energy intensive industrial metals to make — lifted its outlook for global consumption of the metal and posted surprisingly strong quarterly results, raising optimism others will follow suit.
The US results season officially started on Monday, with the focus now on quarterly reports from JPMorgan on Thursday and General Electric on Friday.
Shares in energy company BP were up almost 3 percent at one stage on Tuesday as it prepared to try sealing off its runaway well in the Gulf of Mexico with a new cap.
Prices were also supported by signs of bulging inventories in the world’s largest energy consumer may have fallen last week.
US crude stockpiles are predicted to have dropped by 2 million barrels in the week to July 9, a Reuters survey showed, after tumbling 5 million barrels a week earlier because of shutdowns and shipping disruptions related to Hurricane Alex.
US distillate inventories probably rose by 700,000 barrels, the survey showed, while gasoline stocks are expected to have risen by about 300,000 barrels.
The industry group American Petroleum Institute will release its weekly inventory report on Tuesday at 2030 GMT, followed by government statistics from the Energy Information Administration on Wednesday at 1430 GMT. —Additional reporting by Alejandro Barbajosa